Correlation Between EOS and BF

Can any of the company-specific risk be diversified away by investing in both EOS and BF at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining EOS and BF into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between EOS and BF, you can compare the effects of market volatilities on EOS and BF and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in EOS with a short position of BF. Check out your portfolio center. Please also check ongoing floating volatility patterns of EOS and BF.

Diversification Opportunities for EOS and BF

0.8

Correlation Coefficient

EOS  BF

Very poor diversification

The 3 months correlation between EOS and BF is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding EOS and BF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BF and EOS is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on EOS are associated (or correlated) with BF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BF has no effect on the direction of EOS i.e., EOS and BF go up and down completely randomly.

Pair Corralation between EOS and BF

Assuming the 90 days trading horizon EOS is expected to generate 1.5 times more return on investment than BF. However, EOS is 1.5 times more volatile than BF. It trades about 0.25 of its potential returns per unit of risk. BF is currently generating about 0.25 per unit of risk. If you would invest  45.00  in EOS on September 2, 2024 and sell it today you would earn a total of  49.00  from holding EOS or generate 108.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

EOS  vs.  BF

EOS

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in EOS are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, EOS exhibited solid returns over the last few months and may actually be approaching a breakup point.

BF

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BF are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, BF exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with EOS and BF

The main advantage of trading using opposite EOS and BF positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EOS position performs unexpectedly, BF can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in BF will offset losses from the drop in BF's long position.

The idea behind EOS and BF pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.